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NEW YORK, Oct 11 (Reuters) - Interest rates on U.S. 30-year fixed-rate mortgages jumped to a 7-1/2-year high following a dramatic sell-off in the bond market that propelled the 10-year Treasury yield to its highest level since May 2011, Freddie Mac said on Thursday.
Borrowing costs on 30-year mortgages, the most widely held home loan type in the United States, averaged 4.90 percent in the week ended Oct. 11, which was the highest since the week of April 14, 2011, the mortgage finance agency said.
The latest figure was up from 4.71 percent the week before and 3.91 percent a year ago, it said.
On Tuesday, benchmark 10-year Treasury yield rose to 3.261 percent, the highest since May 2011, as investors pared their bond holdings on worries about rising inflation and a faster pace of interest rate hikes from the Federal Reserve.
The increase in mortgage rates, while still low by historic standards, is another headwind for the housing sector, which is already struggling from low home inventory and rising building costs, analysts said.
“Rising rates paired with high and escalating home prices is putting downward pressure on purchase demand," Freddie Mac's chief economist, Sam Khater, said in a statement.
"While the monthly payment remains affordable due to the still low mortgage rate environment, the primary hurdle for many borrowers today is the down payment and that is the reason home sales have decreased in many high-priced markets,” he added.
As for other types of home loans, 15-year mortgage rates averaged 4.29 percent, up from 4.15 percent a week earlier and 3.21 percent the year before.
The interest rates on five-year adjustable mortgages averaged 4.07 percent, up from 4.01 percent the prior week and 3.16 percent a year earlier. (Reporting by Richard Leong; editing by Jonathan Oatis)